(Figure in attachment!!!)
Problem 4: For each of the following statements, judge if it is true or false, and
provide a detailed explanation behind your answers.
a) Roll’s critique is that the market is never truly in equilibrium and hence
one can never truly test whether the
b) The figure below shows the risk and expected
Consider an investor with “Mean-Variance” preferences, and the statement:
“If the investor is indifferent between assets A and D, then she prefers C
to B; but if she is indifferent between B and C, she prefers A to D.”.
c) Suppose you make a “scatter plot”, each point representing a pair of
contemporaneous returns from a time series of returns on the market
portfolio and a single asset. If the CAPM holds, you would expect all points to line up perfectly on a straight line, the slope of which is the
asset’s beta.
PS: (Problem 4 figure in attachment!!!)
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